Two-thirds of the nearly 300 panelists who participated in a closely-watched survey of fund managers said the rebound in equities since October is a bear market rally.
That somewhat fatalistic view is consistent with warnings from some of Wall Street’s most recognizable strategists, including Morgan Stanley’s Mike Wilson and JPMorgan’s Marko Kolanovic, both of whom on Monday reiterated a cautious stance on US equities and suggested investors should sell into strength.
BofA’s Michael Hartnett, who oversees the bank’s monthly fund manager poll, last week said the scorching January US jobs report might’ve marked the end for a rally which, paradoxically, began with a hot CPI reading on October 13.
“[The] rally from October driven by easier financial conditions (lower yields, lower volatility, lower US dollar) is generally viewed by investors as a bear market rally rather than a new bull market,” Hartnett said Tuesday.
And yet, respondents are now far less bearish on the macro. In fact, just 24% see a recession in the next 12 months. In November, more than three-quarters expected a downturn. At the same time, expectations for the global economy were the least pessimistic in a year.
“Macro sentiment remains bearish, but is now the least bearish since the start of the Russia/Ukraine war,” Hartnett remarked.
Note that inflection points for growth expectations map reasonably well with S&P performance measured on a YoY basis. The improvement in the macro outlook illustrated by the navy blue line in the right-most figure was substantial — 15 points from January’s reading.
All told, 299 panelists with almost $850 billion in AUM participated in the February vintage of BofA’s survey.
Not surprisingly, the biggest “tail risk” remained “higher-for-longer” inflation, but that didn’t stop panelists from adopting the most dovish view on the Fed since the onset of the pandemic compelled Jerome Powell to dust off the Lehman playbook.
Nearly half of surveyed investors expect lower short-term rates over the next 12 months, the largest share since March of 2020. At the same time, a net 83% expect lower inflation globally.
As a reminder: Rate cut expectations have historically been associated with turning points for markets. So, there’s a sense in which the “bear market rally” view doesn’t align with views on policy, and you might also suggest the improving outlook on global growth alongside sharply lower recession odds isn’t consistent with the idea of rate cuts in 12 months.
Meanwhile, Wells Fargo’s Chris Harvey says the bear market is over. “Bear markets often end when we see sharp tightenings and healthy issuance [in IG] similar to what we have experienced over the last several months,” he said.
Still, Harvey doubts stocks have much upside even if the worst is over. His year-end SPX target is 4,200. The bear may be gone, but the bull is likely to remain “stuck in traffic.”
Meanwhile, back in the real world, the Ukraine war is forgotten but not gone:
https://www.msn.com/en-us/news/politics/they-don-t-speak-for-your-voice-or-mine-desantis-to-propose-bill-that-would-block-woke-investments/ar-AA17rhFX?ocid=msedgntp&cvid=b4cb56c3e7bb438299bb95cb578bfaf7
Good morning, Derek. I’m completely in sync with you. I watch updates on the war at least as much as I watch the markets. But I also work for a living. So, neither markets nor Ukraine get a great proportion of my time. But I keep my eyes on the war news and my finger on the market pulse.
Had the US and NATO shared F-16s with Ukraine last summer, their air force would already dominate the Ukrainian sky and the Russians would be on their way home. Along with F-16s, the Ukrainians would have received air to air ordinance, and probably more sophisticated types of ground to air ordinance. But as a result of not taking those decisions earlier, we now see the Russians each day sacrificing many hundreds of their soldiers (even if they were drawn from prison populations) so that Putin and state media can celebrate “winning” a few kilometers over the course of a few days or weeks.
Giving the Ukrainians F-16s and air dominance would be a mercy on the Russian people, who today are substantial victims in the slaughter and deserve to be recognized in the thinking of NATO leaders. Putin is all in, as if he thinks that Ukraine and NATO will in some way fold. It’s time for the west to position for the new world order that can and will be created by the demise of Putin’s autocracy. This would be the greatest mercy that can be given to the people of Ukraine, to the Russian people, and all concerned, like us, who read about the ongoing slaughter each day.
I have to say, I don’t have any actual reason to believe we will see any rate cuts before the end of the year. It can happen. But why would the Fed want to hurry matters? I recalled here, the other day, Bernanke’s Fed had a long raise cycle between 2004 – 2006. He executed a slow, incremental approach to cooling the economy that seemed to be planned and deliberate. Though it was certainly a different circumstance.
I don’t mind citing this example because investing is not usually about being in a hurry. Typically, it requires patience (whether you like it or not), some market understanding, and a sense of who you are and what you want. What’s the rush?
Hear, hear. Excellent advice. Reasonable goals and patience will get the job done in investing. That being said we are not a nation that seems to believe in this virtue. My wife died just before Covid after a 17year bout of Early Onset Alzheimer’s. By the time she needed to move to full nursing care we had wrestled with this disease for 12 of those years. I told a counselor I hired to help me through adjusting to her loss was that this felt like the final test of my patience. Together, we had saved 15-25% of every dollar we made for 40 years and today I have a enough set aside to pay for my grandson to go to any college, my daughter and her family to have the retirement they deserve, and my charities to have resources to help those in need. Patience was the key, along with sacrifice.
Great advice. Deferring gratification has its own rewards. Generally, figuring out and pursuing what truly makes one happy does not involve having even more money- past a certain level that affords a comfortable, but relatively modest life.
So glad you’re doing okay, Mr. Lucky. Sounds like you have done an extraordinary job of caring for your own well-being in the face of highly extraordinary circumstances. Thank you so much for sharing.
This is the nature and reality of life (and investing). Whether we win or lose, we have to live and be conscious, and be sufficiently engaged to manage our affairs, no matter what happens.
As far as the country is concerned, those among us who do not dive into the pool do not risk drowning.
Not all of us confront the challenges of life realities, and instead create their imagined realities. Have you ever read Heisenberg’s friend, Bjarne Knausgard? Bjarne has a site here: https://heisenbergreport.com/author/bjarne-knausgard/, which I have read for years. Bjarne shines a unique light and perspective on the insanity in our country and in the world.